With an upgrade on their stock value to $75 why is HP headed in the other direction? I purchased a few March options with high hopes. Looks like it may be loser. Any opinions on the downward slide?
You could not be more right, and HP at a PE of 20+/- is a good example of your note.
I am still puzzled by the lack of Rational that prevails in the relation of the '' accepted PE for certain stocks ''.
As an Example HP has more going for it than any other Computer / High TECH stock on the market and why is it not reflected in its PE is quiet a mystery ??
Thank you for your suggestion anyway.
The major tech stocks will be going south tomorrow because of INTC. We may see HWP price around $57 - 60, if we are lucky enough. This will not be one month issue. It could be 2 - 3 Q's before we can see BULL around this sector. If you had not sold HWP above $63, just hold on.
I posted here last week re the "Asia" problem. Some of the divisions are having very serious order contractions currently due to the Asia problem and I think the market is just starting to realize the truth of the situation. I know this is true as I have two friends working for the company...they are tightening the hatches at HP.
In response to your question. I have owned HP stock for 19 years and I love HP. However, if you want to be realistic about
the short term stock potential you need to realize that for the past three years HP stock corrects when it hits a "trailing" PE
of 23. For a brief period this summer, it traded at a PE of 24 - 25. If the 40+ some analysts that follow HP are right, and
they seldom miss by more than a few cents on the average, you should see earnings of about $3.47/share in FY98. Therefore, I
expect to see HP trade as high as 24 x 3.47 (FY98 earnings est.) = $83.28 (but it will probably stall at about $80/sh). In the real
short haul (next 2 months), if history tells us anything, I wouldn't expect HP to trade for more than, 24 x $3.00 (trailing 12
months actual earnings)=$72. Both of these prices are max prices. I will sell three month calls against my current HP stock if the
price hits $69/share (a PE of 23) in the next few weeks. If not, I'll just sit on my stock. Sooner or later, HP always continues
to go up. Remember, HP makes over 10,000 products which it sells to nearly every country in the world. If you believe that
technology will continue to have a major impact on mankind, than you've got to believe that HP has a very rosey future. Don't buy
options, wait for the stock to hit $62 and buy the stock and then sell calls against it when it hits a PE of 22 to 23. I lost a great
deal of money trading options before I realized that you want to behave like the casino, not like the gambler. When you buy
calls, in the long haul, time always beats you.
According to Timothy Vicks (author of Today's Value Investor) HWP is currently undervalued. What is surprising is that your analysis is right on line with his valuation of the company using traditional Ben Graham valuation calculations. He calculated the intrinsic value of the HWP at around 72.
I am not currently an owner of this stock but am seriously considering it in line with the principles outlined in Buffetology (author Mary Buffet). So far it appears to meet many of the criteria specified in the book. The one I am still a little concerned about is the comparison of HWPs EPS to the return on Long Term Govt Bonds. Current GOVT Bond = 6.07% so take EPS (2.48) divide by .0607 and the value is around 40. I still want to see what the downside of this company is right now.